Indian investors cannot hold over 10% paid-up equity shares in insurance firms

No Indian investor will be allowed to hold shares exceeding 10 per cent of the paid-up equity shares in an insurance company, according to the Insurance Regulatory and Development Authority of India (IRDAI).

According to the IRDAI (Transfer of Equity Shares of Insurance Companies) Regulations, 2015 which were notified on Monday, all investors (where there are one or more investors in an insurance company) jointly should not hold more than 25 per cent of the paid-up equity share capital of the insurance company.

Further, with reference to the proposals pertaining to the transfer of shares in insurance companies, the authority said it might ask Indian promoters as well as foreign investors to have a minimum lock-in period for infusion of additional capital as a pre-condition for approval.

It will also carry out its own ‘due diligence’ before approving any deal for transfer of shares of insurance companies.

The applications seeking prior approval of the authority should be accompanied by a declaration from a proposed shareholder whether the shares are proposed to be held for his own benefit or as a nominee, whether jointly or severally, or on behalf of others.

No registration of transfer of shares or issue of equity capital of insurance company which will result in change in the shareholding should be made if after the transfer the total paid-up holding of the transferee in the shares of the insurance company is likely to exceed 1 per cent of its paid-up equity capital, the notification said.

The new norms are significant in the backdrop of the recent hike in the upper cap of foreign direct investment in insurance companies from 26 per cent to 49 per cent, which has already triggered some action on this front. Some foreign stakeholders have expressed their intent to raise their stakes and rejig of existing investors might also take place, say industry experts.